Walmart: Devil or Blessing?

The surprising but ultimately intuitive answer

A loyal Econ Soapbox reader asks, “Is Walmart a devil or blessing for small towns?” [If you have an economic question you want answered, let me know!] This post answers that question.

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Google “Walmart destroys mom and pop stores” and watch the totally objectively reported and not at all ideologically driven articles come up. There have always been stories about how Walmart is the death knell for Main Street. How can a local store, tenderly husbanded for decades by generations of a local family, possibly compete with one of the largest behemoths in the history of capitalism? As an economist, that type of argument never carried a lot of weight with me. One company entering a market, causing another company to exit, is not a bad thing; it’s the beauty of capitalism. If people like the mom-and-pop shop that has been a downtown anchor for decades, they will continue to shop there. If not, then they will move elsewhere.

My initial thought was that Walmart was likely very bad for small businesses and very good for low-income consumers. The latter should not be discounted. Imagine a single parent with two children making $30,000 a year in 1995 middle-America. That’s a livable situation. Life isn’t going to be a breeze, but $30,000 is well within the middle class in 1995 for a family of three. Money is going to be a bit tight, but a family with that income should be able to make ends meet barring any unusual catastrophes. Money isn’t the only cost to life, however. There is also time. This is where Walmart becomes a boon to the working class. Not only is money being saved by our single parent who shops at Walmart, but time as well. A lot of time. Going to a familiar Walmart saves hours of schlepping to and from different stores, hoping they have the right goods. Returns are a breeze. Walmart saves consumers a decent amount of money and provides time for people to spend elsewhere. Those time costs should not be discounted, especially for single parents. Walmart can be the difference between living hand-to-mouth in perpetuity and moderate financial stability. That’s the benefit of Walmart.

Then there’s the cost. I’ve spent a significant amount of time in small-town America, and used to buy into the idea that Walmart destroys downtowns. There are countless Main Streets littered with empty storefronts that have been vacant for so long that there aren’t even “For Rent” signs up. And yet, on the outskirts of town, there will be giant big box stores that have hundreds of cars parked outside. Most often, it’s a Walmart. It’s not hard to connect the dots. A Walmart comes in and displaces local shops. The very money and time savings for consumers become the death knell for Walmart's competitors. That story has been told many times.

It’s incomplete.

Numerous economists have looked at the economic impacts of Walmart, and the results are surprising, but somewhat intuitive. First, Walmart does not destroy healthy downtowns. There is no such thing as a vibrant, financially solid Main Street that is destroyed by Walmart. This is for two reasons. First, Walmart may be the largest retailer in the United States, but it isn’t all-consuming. 1.6 million employees is impressive, but it’s considerably less than the US armed forces, and only a tiny fraction of the US labor market. Second, and more importantly, it may feel like Walmart sells everything, but in reality it doesn’t. Thinking more carefully, Walmart is not a competitor to many of the small businesses that are open on the typical American Main Street. And that’s an important distinction.

Walmart is bad for competitors, but who are Walmart's competitors? Other discount stores. This is who Walmart drove out of business. Walmart didn’t obliterate entire Main Streets or entire downtowns, it helped destroy local discount stores. To those readers who are asking, what’s a local discount store, I say, “Exactly”. There used to be stores in most downtowns in the mid-20th century that were kind of like mini-Walmarts. Think “Food and Stuff” from the show Parks and Recreation. They were also called variety stores or five-and-dimes. They provided a place where people could do a great deal of their shopping for basic goods of low to middling quality. These were the victims of Walmart.

And even to put that on Walmart isn’t fair. Walmart was one of several large chains that became popular in the 20th century. KMart, Target, and Sears were others. Then there was Woolworths. Haven’t heard of them? They were one of the original predators of the local discount store that would go on to become prey themselves. All of these national chains took the premise of a local discount store and scaled it up. This allowed them to beat the local competition at their own game - providing even more goods at even lower prices. So yes, local discount stores were gutted by Walmart. But local discount stores were never the key to a thriving downtown. They were one staple of many, along with restaurants, coffee shops, hardware stores, and others.

So the net effect of Walmart is limited. One study found that it resulted in 2-3 three fewer small discount stores per county. Losing three stores isn’t nothing, but it also isn’t the gutting of a downtown. Another study found that there was no impact on the number or profitability of small businesses overall. The simple fact is that most local stores aren’t directly competing with Walmart. Walmart may sell clothes, but a well-run clothing boutique will stock entirely different options and can exist happily down the street. Walmart may sell bikes, but only local bike shops offer higher-end products and repair services. Walmart may sell food, but there’s no substitute for a good local restaurant. The vast majority of local businesses aren’t competing with Walmart at all.

I think Walmart became, in part, a convenient boogeyman. Across America in the second half of the 20th century, people turned away from Main Street. Big box stores and shopping malls proliferated. The causes for this are many and have been the subject of much handwringing. People decided to hop in their cars and drive to the shiny new strip malls and department stores near the highway instead of the Woolworths downtown. Local stores suffered everywhere, and Walmart, being the biggest and most successful discount store, drew a seriously disproportionate amount of ire. So yes, Walmart destroyed local businesses, but only direct competitors.

Those other chain retailers, by the way, are the real victims of Walmart. Kmart, Sears, Woolworths, and even Target, suffer more than anyone when a Walmart comes to town. Far from killing off a lot of independents, Walmart is excellent at taking down other mammoths. The entry of a Walmart into a community often precludes competition from entering. So pour one out for the dead Kmarts that littered the shopping centers of America in the 2000s if you must, but recognize that those are the businesses that Walmart killed.

The benefits of Walmart, however, are real. Walmart does significantly lower prices for consumers. This is both directly - they offer lower prices than competitors, and indirectly - competitors will also lower their own prices to compete. Walmart has also been found to increase food security, a major boon to low-income Americans. To be fair, Walmarts also increase obesity, but I think increasing food security while increasing obesity is a net gain. Walmart also increases housing values by a couple of percent and causes a small net increase in jobs. And contrary to popular belief, those jobs are valued. Walmarts provide an important opportunity for advancement that mom-and-pop stores don’t. They have an established culture and system, and employees don’t have to deal with the arbitrariness of a local owner. That isn’t to say Walmart is a benevolent employer - it isn’t. They have committed numerous labor violations over the years. But don’t make the mistake of thinking that small business owners can’t be just as bad.

At the end of the day, the impact of Walmart on America is positive. It is the largest private employer in the country. It provides low-cost goods and significant time savings for tens of millions of shoppers every month. It has driven out other discount stores, but only because it built a better mousetrap. It does not destroy downtowns. For the ultimate proof of this, look no further than Bentonville, Arkansas. The corporate headquarters of Walmart, and one of the most vibrant downtowns in the Southeast.